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Portfolio diversification and value at risk under thick-tailedness

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Title: Portfolio diversification and value at risk under thick-tailedness
Authors: Ibragimov, R
Item Type: Journal Article
Abstract: This paper focuses on the study of portfolio diversification and value at risk analysis under heavy-tailedness. We use a notion of diversification based on majorization theory that will be explained in the text. The paper shows that the stylized fact that portfolio diversification is preferable is reversed for extremely heavy-tailed risks or returns. However, the stylized facts on diversification are robust to heavy-tailedness of risks or returns as long as their distributions are moderately heavy-tailed. Extensions of the results to the case of dependence, including convolutions of α-symmetric distributions and models with common shocks are provided.
Issue Date: 1-Jan-2009
Date of Acceptance: 10-Nov-2008
URI: http://hdl.handle.net/10044/1/67786
DOI: https://dx.doi.org/10.1080/14697680802629384
ISSN: 1469-7688
Publisher: Taylor & Francis (Routledge)
Start Page: 565
End Page: 580
Journal / Book Title: Quantitative Finance
Volume: 9
Issue: 5
Copyright Statement: © 2009 Taylor & Francis. This is an Accepted Manuscript of an article published by Taylor & Francis in Quantitative Finance on 18 Jun 2009, available online: https://dx.doi.org/10.1080/14697680802629384
Keywords: Social Sciences
Science & Technology
Physical Sciences
Business, Finance
Economics
Mathematics, Interdisciplinary Applications
Social Sciences, Mathematical Methods
Business & Economics
Mathematics
Mathematical Methods In Social Sciences
Value at risk
Heavy-tailed risks
Portfolios
Riskiness
Diversification
Risk bounds
Coherent measures of risk
STABLE-DISTRIBUTIONS
CONVEX COMBINATIONS
EXPECTED SHORTFALL
SIZE DISTRIBUTION
ZIPFS LAW
MARKET
PEAKEDNESS
PRICES
PROBABILITY
STATISTICS
01 Mathematical Sciences
15 Commerce, Management, Tourism And Services
14 Economics
Finance
Publication Status: Published
Online Publication Date: 2009-06-18
Appears in Collections:Imperial College Business School